Certain Skills Are Necessary for Successful Tax Planning

question 3

Multiple Choice

Certain skills are necessary for successful tax planning.One of these skills is applying the time value of money.Which of the following is FALSE regarding this skill?

• A) Applying the time value of money is a tool used for wealth accumulation.
• B) If a taxpayer invests $1,000 at 8% and subsequently earns $48 in after-tax income on the investment at the end of the first year, the taxpayer's tax rate is 40%.
• C) If a taxpayer earns an annual return of 12% and is subject to a 40% tax rate, the annual after-tax return is 4.8%.
• D) If a taxpayer invests $1,000 for one year at a rate of return of 14% and is subject to a 45% tax rate, the compounded after-tax value of the investment will be $1,077.

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Definitions:

Agency Relationship

A legal relationship where one party, the agent, is authorized to act on behalf of another, the principal, in dealings with third parties.

Negligent Hiring

A legal claim made against an employer for hiring someone who they knew or should have known was likely to behave in a dangerous or harmful manner.

Direct Liability

Direct liability is the legal responsibility that arises from one's own actions or omissions, directly causing harm or loss to another party.

Tortious Conduct

Actions by one party that cause harm or loss to another, which can be grounds for a civil lawsuit under tort law.